PRACTICAL GUIDE TO INCOTERMS 2020 No part of this publication may be reproduced, stored in a retrieval system or transmitted in any forms or any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Copyright © Global Marketing Strategies S.L., 2019 107, Drayton Gardens London SW1 9QT. UK www.globalnegotiator.com [email protected] INDEX WHAT ARE THE INCOTERMS RULES? ........................................................................... 6 Classification of the Incoterms 2020 ............................................................................ 7 Changes in the Incoterms 2020: General and specific ............................................... 9 Customs clearance: export, transit and import ......................................................... 14 Variants of the Incoterms ........................................................................................... 16 WHAT ARE THE INCOTERMS USE FOR? ..................................................................... 18 Place of delivery ......................................................................................................... 18 Documents and customs procedures ......................................................................... 21 Transfer of risks in transport ...................................................................................... 23 Allocation of logistics costs ........................................................................................ 24 OBLIGATIONS OF THE SELLER AND THE BUYER ........................................................ 31 EXW Ex Works ............................................................................................................ 32 FCA Free Carrier ........................................................................................................ 40 FAS Free Alongside Ship .......................................................................................... 48 FOB Free on Board ................................................................................................... 56 CPT Carriage Paid To ................................................................................................ 64 CFR Cost and Freight ............................................................................................... 71 CIP Carriage and Insurance Paid to ........................................................................ 79 CIF Cost, Insurance and Freight .............................................................................. 88 DAP Delivered at Place .............................................................................................. 97 DPU Delivered at Place Unloaded ......................................................................... 104 DDP Delivered Duty Paid ........................................................................................ 112 TEN KEYS FOR THE PROFESSIONAL USE OF THE INCOTERMS ............................... 120 WHAT ARE THE INCOTERMS RULES? 6 WHAT ARE THE INCOTERMS RULES? What are the Incoterms rules? The Incoterms rules (INternational COmmerce TERMS) are a total of eleven terms published by the International Chamber of Commerce (ICC) based in Paris, which define the conditions of supply of goods in international sales transactions. The first edition was published in 1936 and subsequently there have been continuous revi- sions and updates (usually every ten years) to that currently in force which is the Incoterms 2020.This edition will probably be in effect for a decade, until 2030. The Incoterms 2020 rules are contained in Publication No. 723 EF of the Interna- tional Chamber of Commerce (ICC) in a bilingual English-French edition. A copy of this publication can be acquired, in both hard copy and e-book format, on the website www.iccbooks.com. Revision and preparation of the Incoterms 2020 was carried out by a group of experts called the “Drafting Group” comprising of ten people. Traditionally, these experts came from European Union countries (mainly France and the United Kingdom) but in this occasion experts from other countries such as Australia, China, the United States and Turkey have been incorporated. Although most experts have a legal back- ground, three of them are specialists in logistics and customs, which has made possi- ble for the new version to use an easy language (plain English) rather than a complex one (legal English); in this sense, closer to the practice of international trade. The process of preparing the Incoterms 2020 was long. The Drafting Group met for the first time in Paris, in April 2017, and delivered the final version in May 2019. During these two years, more than 3000 suggestions and comments were received through the ICC National Committees in the different countries that contributed to supplement the text. The final version was published in September 2019, the year in which the centenary of the International Chamber of Commerce was commemorated. The Incoterms are private law rules and are not underpinned by the laws of any country or by a supranational organisation. They are a set of rules by businesses (ex- porters and importers) within the International Chamber of Commerce to regulate some aspects of foreign trade operations. The Incoterms do not have the force of law and therefore there is no obligation to use these terms in international trade operations; their use will be conditioned on the acceptance of the parties (seller and buyer) in the sale contract. The effectiveness of the Incoterms is that its rules are widely known and used by different parties in for- eign trade (exporters, importers, carriers, freight forwarders, customs brokers, banks PRACTICAL GUIDE TO INCOTERMS® 2020 7 and insurance companies, etc.). Therefore, the Incoterms rules are very useful for sellers and buyers to agree on terms of delivery of the goods and that the agreement corresponds to rules that are universally known. Incoterms 2020: Process of revision and drafting Exporters Importers Logistics & Customs Bannks ICC NATIONAL COMMITEES Countries -3 EU DRAFTING GROUP Background -2 USA. 10 Members - 7 Legal -1 Australia - 3 Logístics & Customs -1 China -1 Turkey Drafting: April 2017 - May 2019 Publishing: September 2019 In effect: January 2020 - December 2029 Classification of the Incoterms 2020 The Incoterms can be classified according to three criteria that all have to do with transport: mode of transport used, payment for the main (international) transport and transfer of risks in transport. In the classification of the Incoterms 2020, the prevailing approach is the mode of transport used. Mode of transport used (Incoterms for any mode of transport and sea Incoterms) The first criterion is the mode of transport used. In the version of the Incoterms 2020, there are seven Incoterms that can be used with any mode of transport (surface, air or sea) or multiple modes (multimodal). Conversely, there are four Incoterms that can only be used with sea transport and inland waterways (canals, rivers, lakes). 8 WHAT ARE THE INCOTERMS RULES? • Incoterms for any mode of transport and multimodal transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. • Incoterms, only for sea and inland waterways transport: FAS, FOB, CFR and CIF. Payment for the main transport (seller or buyer) The second criterion of classification is the payment of main transport which is the international transport between the country of origin and the country of destina- tion. The Incoterms distinguish between those terms in which the main transport payment is made by the buyer (importer) and those where it is made by the seller (exporter). • Incoterms in which the main transport is paid by the buyer: EXW, FCA, FAS and FOB. • Incoterms in which the main transport is paid by the seller (exporter): CPT, CFR, CIP, CIF, DAP, DPU and DDP. Transfer of risks in transporting the goods (at origin or destination) Finally, we should distinguish between those Incoterms in which the obligation to deliver the goods by the seller and, therefore, the transfer of risks in transport occurs in the country of origin, while in other Incoterms the obligation of delivery occurs in the country of destination. • Incoterms with transfer of risks in the country of origin: EXW, FCA, FAS, FOB, CPT, CFR, CIP and CIP. • Incoterms with transfer of risks in the country of destination: DAP, DPU and DDP. In the case of Incoterms in “C” (CPT, CFR, CIP and CIF) should be noted that, although the seller will be paying international transport to the country of destina- tion, the risks of transport are transferred in the country of origin when the goods are loaded onto the means of transport. Hence in the Incoterms CIF and CIP, which incorporate a compulsory insurance transport, it is the seller who takes out and pays the insurance. Although, the beneficiary of insurance is the buyer who bears the risks of transport. PRACTICAL GUIDE TO INCOTERMS® 2020 9 Classification of Incoterms 2020 Payment Transfer Mode of Acronyms Incoterm of main of risks in transport transport transport EXW Ex Works Any mode Buyer Origin FCA Free Carrier Any mode Buyer Origin CPT Carriage Paid To Any mode Seller Origin CIP Carriage and Insurance Paid To Any mode Seller Origin DAP Delivered at Place Any mode Seller Destination DPU Delivered at Place Unloaded Any mode Seller Destination DDP Delivered Duty Paid Any mode Seller Destination FAS Free Alongside Ship Sea Buyer Origin FOB Free On Board Sea Buyer Origin CFR Cost and Freight Sea Seller